Budget 2004: Consumer Durables
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Significant thrust on infrastructure development and continuation of rural electrification projects. |
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Hike in standard deduction, removal of surcharge and hike in section 80L benefits. |
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Peak customs duty reduced to 25% from 30%. |
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Excise duty on air conditioners reduced by 8% from 32% to 24%. |
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The thrust on infrastructure is of great significance as far as the long-term growth potential of the consumer durable sector is concerned. Since government spending creates employment and has other economic benefits, continuation in this policy is a step in the right direction. As employment and income increases, it will trickle down to higher demand for consumer durables. Just to put things in perspective, penetration in top seven metros for CTV is as high as 65%. While consumers have been upgrading in urban areas, demand from rural regions has been subdued in the last two years (penetration is at 6%). As the economic growth in the rural region gathers pace, growth in demand for durables could accelerate in other areas. This will boost overall industry prospects. In the consumers' hierarchy of needs, after housing, consumer durables tend to top the list. This combined with lower interest costs on loans will act as a trigger.
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Air conditioner manufacturers have been demanding a reduction in excise duty for quite some time. Though expectations were for a 16% reduction, an 8% reduction is still a positive for the companies. We expect prices to fall further from the current level especially when one considers the reduction in peak customs duty. On one hand, imports become cheaper and on the other, key raw material prices will also decline. Both these factors will lower prices and boost demand. Voltas and Blue Star, the listed A/C manufacturers, will benefit. At the lower end of the segment, the decline in price could be as high as 10%. |
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The reduction in peak customs duty from 30% to 25% will benefit television set manufacturers to a large extent. Colour picture tube accounts for an estimated 40% of raw material costs for CTV manufacturers, most of which is imported. Just to put things in perspective, total imports as a percentage of revenues for BPL stood at 17% in FY02 (23% of raw material expenses). This could lower the impact of price erosion on operating margins in FY04. |
| Removal of 16% special excise duty on air conditioners and continuing with the abatement of 40%. |
| Increase in abatement on watches to 40% and reduction in customs duty on key raw materials. Exemption of excise duty on watches and clocks of retail price not exceeding Rs 500 per piece. |
| Excise duty on B&W TV set should be based on MRP with an abatement of 40%. |
| There should be customs duty differential between CTV, colour picture tube and colour glass parts to encourage value addition |
| Budget 2000-01 |
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Budget 2001-02 |
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Budget 2002-03 |
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| Reduction in peak customs duty to 40%. |
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No major significant developments. |
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Thrust in rural electrification and road connectivity. Peak customs duty on raw materials lowered to 35% from 40%. Excise duty on watches below Rs 500 per piece increased. Excise duty on B&W TV increased to 8% from 4%. Administered interest rates lowered by 50 basis points. |
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[Read more on Budget 2001-02] |
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[Read more on Budget 2002-03] |
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| Key Positives |
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| Penetration of durables continues to remain sluggish when compared to other developing economies |
| Rising income levels, consumption patterns and urbanization are some of the key factors that would result in higher growth in volumes in the long run. |
| Easy availability of finance has stimulated consumers to buy durables. |
| With the government focusing on rural electrification programme, the consumer electronic manufacturers stand to benefit over a period of time. |
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| Key Negatives |
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| Higher import duty on key raw materials (eg: colour picture tubes) has been a cause of concern |
| Exchange schemes and pricing-play by some manufacturers have had a negative impact on top players. Prices of durables and electronics have been on the decline over the last three years |
| Volatile performance of the agricultural sector has had a negative impact on demand. The sector’s performance is highly dependent on monsoon and reforms, which have disappointed. |
| Threat of cheaper imports from China and other South East Asian countries, both for electronics and watches |
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